Correlation Between Eastern and CompX International
Can any of the company-specific risk be diversified away by investing in both Eastern and CompX International at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Eastern and CompX International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastern Co and CompX International, you can compare the effects of market volatilities on Eastern and CompX International and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Eastern with a short position of CompX International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern and CompX International.
Diversification Opportunities for Eastern and CompX International
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Eastern and CompX is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and CompX International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompX International and Eastern is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Eastern Co are associated (or correlated) with CompX International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompX International has no effect on the direction of Eastern i.e., Eastern and CompX International go up and down completely randomly.
Pair Corralation between Eastern and CompX International
Considering the 90-day investment horizon Eastern Co is expected to under-perform the CompX International. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Co is 1.77 times less risky than CompX International. The stock trades about -0.21 of its potential returns per unit of risk. The CompX International is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 2,908 in CompX International on August 27, 2024 and sell it today you would lose (153.00) from holding CompX International or give up 5.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eastern Co vs. CompX International
Performance |
| Timeline |
| Eastern |
| CompX International |
Eastern and CompX International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eastern and CompX International
The main advantage of trading using opposite Eastern and CompX International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern position performs unexpectedly, CompX International can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CompX International will offset losses from the drop in CompX International's long position.The idea behind Eastern Co and CompX International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| CompX International vs. Park Electrochemical | CompX International vs. Innovative Solutions and | CompX International vs. Curtiss Wright | CompX International vs. National Presto Industries |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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